Focus on Ag: Supplemental coverage option insurance considerations for 2019
Many corn and soybean producers have an additional crop insurance decision to make by March 15, which is the deadline to purchase federal crop insurance coverage for 2019. The supplemental crop option (SCO) crop insurance alternative was included in the 2014 Farm Bill and will be continued in the new Farm Bill. As a result, the SCO insurance option is available for the 2019 crop year for corn, soybeans, and other farm program crops in most areas of the U.S.
Many crop farmers may not even be aware that the SCO crop insurance option could be available to them for 2019.
The SCO coverage is only available to producers that choose the price loss coverage (PLC) farm program option for the 2019 and 2020 crop years, as part of the new Farm Bill. Over 97 percent or the corn and soybean crop base acres in Minnesota and Iowa were enrolled in the ARC-CO farm program option in the 2014 Farm Bill, which covered the 2014-2018 crop years, and thus were not eligible for SCO insurance coverage.
As a result, most corn and soybean producers in the Upper Midwest are not very familiar with the SCO crop insurance alternative. However, it is anticipated that many more producers will choose the PLC farm program option for 2019 and 2020, especially for corn, which could make SCO a viable crop insurance option. SCO allows producers that choose the PLC farm program option to purchase additional county-level crop insurance coverage up to a maximum of 86 percent coverage. The SCO coverage fills the gap up to the 86 percent coverage level from the coverage level chosen by the producer (75 percent, 80 percent, 85 percent, etc.) for yield protection (YP) or revenue protection (RP) insurance coverage. For example, a producer that purchases an 80 percent RP policy could purchase an additional 6 percent SCO coverage. There is not much incentive for producers already at the 85 percent coverage level to purchase SCO coverage, as they could only add an additional 1 percent of insurance coverage.
SCO is a county revenue-based insurance product that is somewhat similar to some of the area risk protection crop insurance products that are available. The calculations for SCO function very similarly to RP insurance policies, since they utilize the same crop insurance base price and harvest price. The biggest difference is that SCO uses county level average yields, rather than the farm-level APH yields that are typically used for most RP and YP policies. SCO also uses county average yields for a harvest yield, while RP and YP policies use verified farm yields. As a result, the SCO and RP insurance policies may achieve different results.
It is possible for a producer to collect on an individual RP policy, but not on a SCO policy, or vice versa. For example, a producer with an 80 percent RP policy may have a loss that qualifies for an insurance indemnity payment, while the county as a whole may not meet the threshold to qualify for a SCO payment. This would be especially likely for producers that choose optional versus enterprise units. It could also be possible to collect a SCO payment for a county-level revenue loss, while not qualifying for a RP insurance indemnity payment at the farm-level. This situation could have occurred in certain instances for the 2018 crop year in some counties.
The tricky part of SCO is that the decision to sign up for SCO coverage for 2019 must be made by the March 15 crop insurance deadline. Most likely, sign-up for the new farm program will not occur until after that deadline. USDA has not offered any guidance on how this situation will be handled. So, producers that are reasonably sure that they plan to choose the PLC farm program option for 2019 and 2020 may also want to consider the SCO insurance coverage option for 2019.
The federal government subsidizes 65 percent of the premium for SCO coverage, so farm-level premiums are quite reasonable. Interested producers should check with their crop insurance agent for details on SCO insurance coverage and premiums for 2019.
New Farm Bill implementation details coming soon
USDA is expected to announce timelines for implementing the new Farm Bill very soon. Some analysts expect Farm Service Agency (FSA) offices to have farm program details by late March to begin the process of informing and educating producers about farm program details. There has also been some speculation that sign-up for the new farm program at FSA offices could be delayed until late spring and early summer, possibly to coincide with the normal dates for reporting planted crop acres at FSA offices. However, it is important to note that USDA has made no official announcements regarding farm program sign-up dates or details.
As part of the new Farm Bill, producers will again be given the option to choose between county-based ag risk coverage (ARC-CO) farm program option or the price loss coverage (PLC) option for all eligible program crops for the 2019 and 2020 crop years. Following 2020, producers will be able to make annual farm program choices for each eligible crop for the 2021, 2022 and 2023 crop years. Producers will also have the opportunity the update their FSA farm program yields for the 2020 crop year and beyond, which will be based on the 5-year average farm-level yields from 2013 to 2017. The FSA yields are used for the PLC farm program calculations, while the ARC-CO program utilizes county average yield data.
There have been some reports of farmers urging USDA and Congress to consider delaying implementation of the farm programs contained in the new Farm Bill until the 2020 crop year. These farmers are indicating that more time is needed to make a Farm Bill decision, which could affect their planting decisions for the 2019 crop year. Delaying farm program implementation for the 2019 crop year could end up being quite costly for some producers, especially if they are forced to continue with their 2018 farm program choice. Over 95 percent of Upper Midwest corn and soybean producers opted for the ARC-CO program for the 2014-2018 crop years. The ability to choose the PLC program option for the 2019 crop year, especially for corn, could potentially be beneficial to some farm operators.
It is already assured that the 2019 corn benchmark price used for ARC-CO program payment calculations will be $3.70 per bushel, which is the same as the reference price that is used for PLC program calculations. If the actual 2019 county-level corn yields are near the 2019 county benchmark yields, there is almost no chance of getting an 2019 ARC-CO payment for corn, unless the 2019-20 market year average corn price drops below $3.25 per bushel. At that MYA price level, many producers would earn $50 to $75 per corn base acre under the PLC program. The corn PLC payments are initiated once the MYA price drops below $3.70 per bushel, and the payments are not affected by farm-level or county-level yields.